This section examines the sensitivity, vulnerability, and adaptability of private-
and public-sector insurance to climate change. Activities within these segments
are significantly interrelated, and the role of each varies widely from country
to country and over time (Van Schoubroeck, 1997; Ryland, 2000). Government programs
exist primarily to correct market failures in the private sector, when insurance
cannot be provided at a reasonable rate, or when insufficient capacity exists
to pay claims (Mittler, 1992). In addition, the nature of events anticipated
under climate change (e.g., increased flooding) draws into question their very
insurability by private companies (Denenberg, 1964; Mittler, 1992; White and
Etkin, 1997; Hausmann, 1998; Kunreuther, 1998; Nuttall, 1998).

Insurers are sensitive to a diversity of potential climate changes (Ross, 2000).
Understanding and adapting to weather-related losses are high priorities in
the insurance industry. Loss growth has resulted in the absence of commercial
insurance for the most vulnerable risks, such as flood or crop damage in many
countries. Changes in weather-related events associated with global climate
change would increase the sector's vulnerability (Vellinga and Tol, 1993;
Changnon et al., 2000; TAR WGIChapters
9 and 10). Recent history has shown that weather-related
losses can stress insurance firms to the point of elevated prices, withdrawal
of coverage, and insolvency (bankruptcy).

The private insurance sector is highly heterogeneous, and the penetration of
insurance varies dramatically across regions and within countries, as does the
exposure and vulnerability of human populations and property to natural disaster
events. Analyses that are meaningful to local policymakers, governments, and
economies must adopt a variety of perspectives: regional, state, municipality,
company, and the growing number who are self-insured.

Based on observations over the past decade, the property/casualty (P/C) segment
is more vulnerable to weather-related events than the life/health segment (Table
8-2). The P/C segment is extremely diverse. The single most vulnerable branch
appears to be property insurance, including business interruption (Bowers, 1998).
Other lines, such as personal automobile insurance, have more limited exposure.

Of 8,820 loss events analyzed worldwide by Munich Re between 1985 and 1999,
85% were weather related, as were 75% of the economic losses and 87% of the
insured losses (Munich Re, 1999b, 2000). The weather-related share of total
losses is as high as 100% in Africa and 98% in Europe. Global weather-related
insurance losses from large events2
have escalated from a negligible level in the 1950s to an average of US$9.2
billion yr-1 in the 1990s (Figure 8-1)13.6-fold
for the 1960-1999 period for which detailed data are available. Insurance losses
have grown significantly faster than total economic losses and insurance reserves
and assets (i.e., adaptive capacity). Since the 1950s, the decadal number of
catastrophic weather-related events experienced by the insurance sector has
grown 5.5-fold.
These trends would be exacerbated by increased vulnerability resulting from
development of high-hazard zones and increasingly sensitive infrastructure (Swiss
Re, 1998a; Hooke, 2000; see Chapter 4).

Insurers have differing views on climate change (Mills et al., 2001).
Although several insurers have devoted significant attention to the issue (especially
in Europe and Asia), the vast majority have given it little visible consideration.
Some have taken definitive precautionary positions in stating that there is
a material threat (Swiss Re, 1994; UNEP, 1995, 1996; Jakobi, 1996; Nutter, 1996;
Zeng and Kelly, 1997; Berz, 1999; Bruce et al., 1999; Munich Re, 1999b;
Storebrand, 2000), whereas others have taken a different view (Mooney, 1998;
Unnewehr, 1999). Some have elected to focus on disaster preparedness; others
have adopted a "wait-and-see" stance.

Table 8-2: Distribution of the global insurance
market, including life/health and property/casualty, by region (Swiss Re,
1999b). Note that weightings between property/casualty and life/health vary
considerably among countries. Swiss Re (1999b) provides detailed information
by country. In some cases (e.g., Japan), life insurance premiums include
annuities, which eventually are reimbursed to the insured.